Fitch Rates Bimbo's Notes Issuance 'BBB'

June 24, 2014 05:20 PM Eastern Daylight Time

MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has assigned a 'BBB' rating to Grupo Bimbo S.A.B. de
C.V.'s (Bimbo) issuance of senior unsecured notes for USD800 million due
in 2024 and USD500 million due in 2044. Bimbo will use the net proceeds
of the issuance to repay existing indebtedness and for other general
corporate purposes.

KEY RATING DRIVERS

Bimbo's ratings continue to reflect its important size and scale within
the global bakery industry, strong brand recognition and positioning in
the markets where it operates, and extensive distribution network which
provides a key competitive advantage. The ratings also consider the
company's stable operations with historically low volatility in revenues
and margins, diversified revenue base and positive free cash flow (FCF)
generation.

Bimbo's ratings are constrained by the recent debt-funded acquisition of
a 100% equity stake in Canada Bread Limited Company (Canada Bread) in
May 2014 for CAD1.83 billion, which will increase company's leverage in
the short term, pressuring credit quality. In addition, the current
operating environment in Mexico, with its new taxes on high-calorie food
products and weak economic conditions, also pressures the ratings.

Improved Geographic Diversification

The acquisition of Canada Bread improves the company's business risk
profile by strengthening its position as a global player in the bakery
industry, as well as incorporating strong brands into its product
portfolio and providing access to key large retailers and leading food
services accounts. Canada Bread will also bring Bimbo geographic
diversification of revenues and EBITDA. On a pro forma basis including
Canada Bread, Bimbo will generate around 63% of its total revenues and
40% of its total EBITDA from its operations outside Mexico. Canada Bread
operations represented around 10% and 14% of Bimbo's consolidated
revenues and EBITDA in 2013, respectively, and had an EBITDA margin of
around 12%. Fitch believes that a diversified base of revenues and
EBITDA lowers business risk and cash flow volatility

Soft Operating Environment in Mexico

Fitch expects a challenging operating performance for Bimbo in 2014 as a
result of the new taxes on high-calorie products and weak economic
conditions in Mexico. Despite a volume decline in Mexico for the first
quarter of 2014 (1Q'14), revenues and EBITDA were flat. Fitch
anticipates an increase in Bimbo's consolidated revenues and EBITDA in
2014 as a result of the Canada Bread acquisition, while EBITDA margins
should remain relatively stable as a result of synergies from the U.S.
operations, less volatile raw material costs, and internal efficiencies
in its operations, which will offset the impact of integration cost in
the U.S. Fitch estimates that Bimbo's 2014 full-year EBITDA margin on a
pro forma basis, including the Canadian operations, will be around 9% to
10%.

Fitch has taken a conservative approach to the ratings, believing that
Bimbo's revenues in Mexico will remain flat in 2014, despite some
indications that volumes may start to pick up in 2Q'14. During 1Q'14,
Bimbo reported a volume decrease of 6% in Mexico mainly as a result of
higher average prices related to the new 8% tax on high-calorie foods
products, which the company passed along to consumers. The tax affected
a portion of Bimbo's portfolio of sweet baked goods, snacks,
confectionery and cookies. Fitch expects that volume demand in Mexico
will continue weak in the short term as consumers fully absorb the
effect of new prices, as well as remain cautious about a recovery in the
economic environment for the second half of the year.

Deleverage Expected after Canada Bread Acquisition

The ratings reflect the expectation that Bimbo's gross leverage measured
as total debt-to-EBITDA will gradually decrease to levels of around 2.5x
in the following 18 to 24 months after closing the acquisition of Canada
Bread in May 2014. The transaction enterprise value of CAD1.83 billion
was funded with USD1.5 billion of additional debt. Fitch anticipates
Bimbo's pro forma total debt-to-EBITDA will increase to approximately
3.1x by year-end 2014 considering 12 months of consolidation of Canada
Bread. In addition, Fitch takes into account that Bimbo will maintain
its commitment to debt reduction to achieve its long-term gross leverage
target below 2.0x.

Adjusting for operating leases related to the production, distribution
and sale of its products, Bimbo's total adjusted debt-to-EBITDA plus
rents (EBITDAR) for the last-12-months as of March 31, 2014 was 3.2x,
which compares favorably with 3.8x for the same period last year.
Including the full-year results of Canada Bread, Fitch expects that on a
pro forma basis Bimbo's total adjusted debt-to-EBITDAR will increase to
3.7x by year-end 2014 and will gradually decrease below 3.0x in the long
term as the company reaches its long-term leverage target.

Solid FCF Generation

Fitch anticipates that Bimbo will maintain solid FCF generation and will
use it for debt reduction. The company's FCF after capex and dividends
was negative in 2013 as a result of higher working capital requirements
related to prepaid payments and taxes, as well as an extraordinary
dividend payment of around MXN1.7 billion. However, for 2014 Fitch
expects a recovery of the company's FCF to levels around MXN3 billion.
In addition, Bimbo does not anticipate distributing dividends in 2014
and 2015, supporting FCF and debt reduction.

Adequate Liquidity

As of March 31, 2014 the company had a cash balance of MXN3.6 billion
and short-term debt of MXN5.9 billion. Bimbo also has a USD2 billion
committed revolver credit facility that expires in 2019, of which USD1.9
billion was used to finance the acquisition of Canada Bread and the MXN5
billion of debt due in June 2014 from a local issuance. The company's
next significant debt maturities are in 2016 and 2018 for MXN5.9 billion
and MXN5.3 billion, respectively. Fitch anticipates that Bimbo use of
proceeds from the senior notes to repay debt will improve its debt
maturity profile and financing costs.

RATING SENSITIVITIES

Bimbo's ratings are likely to be downgraded if, for a sustained period
of time, a total debt-to-EBITDA ratio above 3.0x was maintained due to a
decline in its operating performance or cash flow generation as a result
of a weaker economic environment. Also, a significant debt-financed
acquisition in the short term would result in a rating downgrade. Fitch
does not anticipate positive rating actions after the acquisition of
Canada Bread, but would view as positive to credit quality a combination
of debt reduction, higher operating income, and cash flow generation
leading to a sustained improvement in leverage.

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